JLN Options: VIX FUTURES OPEN INTEREST HITS NEW RECORD: OVER 280,000 CONTRACTS

Mar 6, 2012

Lead Stories

VIX FUTURES OPEN INTEREST HITS NEW RECORD: OVER 280,000 CONTRACTS
CHICAGO, March 6, 2012 (Press Release) – CBOE Futures Exchange, LLC (CFE) today announced that open interest in CBOE Volatility Index (VIX index) futures reached new all-time highs on Monday, March 5 and Thursday, March 1. On March 5, open interest hit 282,314 contracts, exceeding a 256,870-contract record on March 1. Prior to these records, the highest VIX futures open interest recorded was 253,319 contracts on June 15, 2011.
http://jlne.ws/yII3yy

VIX Trading Volume Tells a Different Story
By Dave Fry, TheStreet 03/06/12
NEW YORK (ETF Digest) — A peculiar situation has recently arisen with regards to the VIX Index. Popularly referred to as the “fear index” or “fear gauge,” the VIX is the Chicago Board Options Exchange Market Volatility Index. It roughly corresponds to the expected movement (or volatility) of the S&P 500 over the next 30 days.
When the VIX rises it usually indicates rising fear or uncertainty in the markets, and this week the VIX is looking pretty calm (low). If you look at the trading volume though, it tells a very different story. The VIX registered the second-highest daily trading volume on record last month with 1.34 million contracts, up about 65% compared with January. The only time the index has seen more volume was in August, when the market was shaken by Europe’s sovereign debt crisis, as well as a downgrade of the U.S.’s credit rating.
http://jlne.ws/y0TwOC

Unusual moves in the VIX and its futures
Chris McKhann | optionmonster.com March 6, 2012
The CBOE Volatility Index closed higher yesterday, but the VIX futures fell with the S&P 500. The VIX, which usually moves inversely to the SPX, ended the day just off its session low but was still up 4.4 percent to 18.04. This came with the S&P 500 down 5.3 points to 1364.33. The March VIX futures were down 1.23 percent to 20.15. April futures were down fractionally to 23.65. The May futures were unchanged, and rest were higher.
http://jlne.ws/AA6oL6

Silver Calls at Highest Since 2010 on Economic Recovery: Options
Cecile Vannucci and Nikolaj Gammeltoft, Bloomberg News
Tuesday, March 6, 2012
Options traders are the most bullish in 16 months on an exchange-traded fund tracking silver, this year’s best-performing metal, betting it will continue its rally as the global economy recovers.
http://jlne.ws/z6sC1p

Index, ETF option volumes near midday
Chris McKhann, optionmonster.com March 6, 2012
Total option volume is huge this morning, already topping 8.2 million contracts, but action in the indexes and ETFs is mixed even as equities sell off, according to optionMONSTER’s data systems.
The SPDR S&P 500 Fund (SPY) has already seen 1.3 million contracts change hands, with a put/call ratio just shy of 2 to 1. The Russell 2000 Fund (IWM) options have turned over 475,000 times, with 338,000 of them puts.
http://jlne.ws/y2JCWV

One Of These Volatility Funds Is Not Like The Others
By Brendan Conway, Focus on Funds – Barrons.com
Amid Tuesday’s market downdraft, it’s worth noting that there’s a bottleneck in the burgeoning market to “trade” stocks’ volatility. It’s located in an exchange-traded product that behaves like a closed-ended fund, with much of the inefficiency, profit potential and risk of that investing niche. Except this time, your prediction of where fundamentals or even market volatility are headed doesn’t really matter. That’s a lesson in one of the dangers of exchange-traded notes, whose existence and wellbeing are at the special mercy of major investment banks. It’s also a sign that the “volatility trading” niche is having some significant growing pains.
http://jlne.ws/wjpkOC

Exchanges

Nasdaq OMX: Revised Price Estimate of $28 on Growing Derivatives Business
Trefis
March 6th, 2012 by Trefis Team
We have updated our analysis of Nasdaq OMX Group (NASDAQ:NDAQ) and revised our price estimate for the company’s stock to $28 from our previous estimate of $26. Nasdaq has done remarkably well in diversifying its sources of revenue which helped the company deliver growth in revenues and income in 2011 despite the challenging market environment. Nasdaq is the second largest exchange operator in the U.S. and competes with NYSE Euronext (NYSE:NYX) and CME Group (NASDAQ:CME).
http://jlne.ws/y6J2JP

Options on Futures

Crude Options Volatility Rises as Oil Futures Little Changed
By Barbara Powell, Bloomberg – Mar 5, 2012
Crude oil options volatility rose to the highest level in seven sessions as underlying futures were little changed after fluctuating much of the day on lower volume. Implied volatility for at-the-money options expiring in March, a measure of expected price swings in futures and a gauge of options prices, was 29.8 as of 4 p.m. in New York, up from 28.3 on March 2.
Crude for March delivery rose 2 cents to settle at $106.72 a barrel on the New York Mercantile Exchange. Since Feb. 17, the front-month contract has traded in a range of $104.26 and $110.55. Preliminary volume in electronic trading for crude oil was 445,242 contracts as of 3:08 p.m. in New York, 28 percent below the three-month average.
http://jlne.ws/wGQxzQ

Strategy

Investing In Volatility With Equity Options
Seeking Alpha March 6, 2012
When taking a position in volatility with the purpose of diversifying a portfolio of investments one must decide whether to buy a portfolio of delta hedged options on single stocks and indices, stick to a more passive strategy and only keep a portfolio of delta hedged index options, buy a variance swap, or to buy products or derivatives on a volatility index such as VIX. It is increasingly popular to invest in exchange listed products tracking the VIX index and to buy futures or options on the VIX-index. The main advantage of many listed volatility products is their accessibility, but normally, the best way to get the results you want is through a dynamically hedged portfolio of single stock options. Volatility investing has attracted a lot of criticism, partly as a consequence of the nature of volatility, but also because of the draw-backs of many widely used vehicles for volatility investing. There are, however, ways of mitigating these drawbacks and maintaining a long volatility position over time without cost of carry. A portfolio that can draw the full advantage of the diversifying effects of volatility will dramatically improve long term value growth, as big draw-downs are minimized or avoided all together.
http://jlne.ws/AyEWnU

Get General Electric Shares at a Discount
By STEVEN M. SEARS, Barrons.com
Selling puts on GE can be a cost-effective way to obtain a quality stock.
The current weakness in the stock market offers a great chance to buy quality stocks at discount prices. By selling puts – which are now rising in value as stock prices decline – investors can get the options market to pay them to buy quality stocks that pay solid di
vidends.
http://jlne.ws/wWvufK
Time decay key to mid-cap strategy
NASDAQ.com
by David Russell from optionMONSTER in Investing, Options
One investor wants to turn time into money with a highly unusual trade on mid-cap stocks.
optionMONSTER’s Depth Charge monitoring system detected the purchase of about 3,000 April 184 puts on the SPDR S&P MidCap exchange-traded fund for $11.40. An equal number of April 180 puts were sold at the same time for $8.20. Volume was more than 180 times open interest in both strikes. The position is remarkable because the MDY is trading for $173.88, down 1.88 percent on the day, which means that both of those contracts are in the money . It cost $3.20 to open and will expand to $4 if the stock remains below $180 through expiration.
http://jlne.ws/wFjBmy   EVENTS

ICE LIVE WEBINAR: Trading Weekly Options Around Cotton Reports
Wednesday, March 7
3:00 PM CT/4:00 PM ET
Presenters
Outlook: Sharon Johnson, Senior Cotton Specialist, Penson Futures
Options Strategies: Jeff Lewandowski, Director of Options, PFGBEST
Join ICE for a cotton outlook and options presentation in advance of two closely-watched USDA cotton reports to be released on March 8 (export sales) and March 9 (supply and demand).
http://jlne.ws/yxm0lY

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